Guidelines “preserve GCs’ independence amidst corporate tension”

Moorhead: Non-executive directors key to GC’s role

Comprehensive guidelines to boost the roles of, and relationships between, in-house lawyers (IHLs) and non-executive directors (NEDs), have been drawn up in the hope of minimising the chances of an ethical lapse damaging both the companies they serve and the public interest.

Based on 29 principles, the guidelines, if implemented, would ensure company lawyers had the independence and support at board level to challenge a chief executive bent on putting profits before ethical behaviour, even if technically not illegal.

Devised by a team of legal ethics specialists led by Professor Richard Moorhead at University College, London’s Centre for Ethics and Law, the best practice guidelines recognised the difficult position general counsel (GC) sometimes found themselves in – expected to be team players  promoting shareholders’ interests, while at the same time meeting professional obligations.

They acknowledge both the central role of NEDs in corporate governance, and of IHLs to their organisation’s ability to function effectively and within the law, but are based on the premise that the relationships between the two are “sometimes not as strong” as they might be.

If followed, the principles would enmesh legal officers’ work with those of NEDs, including a role in each other’s appointment and the explicit guarantee of regular meetings separate from top executives.

They would also ensure the protection of lawyers’ independence and clarification of their ethical responsibilities, and give them a formal role at board meetings and on key board committees, and a direct line to the board’s chairman.

For example, they state: “The GC should be involved in the highest level of the organisation’s activities. When providing legal advice, the GC’s approach should encompass the strategic and the ethical dimensions of legal issues.”

Among three governing principles were that there must be “a shared and explicit recognition of how the legal department understands and contributes to the ethical culture of the organisation”.

Explaining the context for the guidelines, the academics said: “Incidents of corporate and financial misconduct have raised questions over the culture and ethical leadership of organisations.”

They reported that informal discussions with NEDs suggested they were keen to have a role in both assisting and challenging IHLs.

The authors added: “In fast-paced, commercially driven organisations, where elevated ethical pressure may be normal, there is a collective responsibility and desire to help ensure NEDs and IHLs have the knowledge, relationships and support they need to thrive.

“Against that background, we note an absence of corporate governance and professional guidance on the role of IHLs generally and the GC-NED relationship in particular.”

While they acknowledged the guidelines – which arose from discussions with the Banking Standards Board and borrowed heavily from the experience of the financial service sector – were likely to be adopted by larger businesses, they hoped they would be “useful and challenging, rather than prescriptive”.

They stressed the guidelines were not directed at IHLs so much as their organisations and sought “to recognise and promote the importance of the in-house legal function, and the infrastructure supporting the quality, leadership, and oversight of that function”.

They noted that the GC and IHLs should be particularly careful about areas covered by the guidelines at times of “corporate tension”, such as when time was short during an acquisition or public offering, when “major errors of judgement may be more likely to occur”.

The other authors were UCL law academics Trevor Clark, Alan Brener and Dr Steven Vaughan, and Paul Gilbert, who runs in-house lawyer consultancy LBC Wise Counsel.


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